1. The Poverty Reduction Strategy (PRS) approach consists of a series
of process innovations designed to encourage broader-based participation
in the development of a country-owned, long-term strategy for growth and
poverty reduction that could also be a framework for coordinating donor
support. It was accompanied by a transformation of the IMF's concessional
lending facility into the Poverty Reduction and Growth Facility (PRGF).
It is too early to evaluate the success of the new approach in achieving
its longer-term objectives, especially the extent of reduction of poverty;
progress in this dimension will become evident only over a longer period
of time. The evaluation has, therefore, focused on intermediate stage
outcomes, that is, the quality of the broader-based policy formulation process,
the nature of the strategy and policy framework that has evolved, the
interaction between this framework and the PRGF, and the effectiveness
of the IMF's role. We summarize here our major findings as well as the
lessons to be drawn from them and make a number of recommendations for
the future. The final section reflects on some implications of the evaluation
for the longer-term role of the IMF in low-income countries.

A. Summary of Major Findings

2. The broad picture that emerges from our study is that the PRS
approach has the potential to encourage the development of a country-owned
and credible long-term strategy for growth and poverty reduction,
which could provide an effective framework for coordinating the efforts
of donors and international financial institutions (IFIs), including the
IMF. However, actual achievements thus far fall considerably short
of potential. This is partly because it is unrealistic to expect
quick gains given the initial conditions from which the process started
in most low-income countries. But there were also shortcomings in the
design of the initiative that have reduced its effectiveness, including
a lack of clarity about the role which the IMF should play.

3. Participation in the formulation of Poverty Reduction Strategy Papers (PRSPs) was generally more
broadly based than in previous approaches, and most stakeholders involved
in the process viewed this as a significant improvement. However,
the participatory processes were typically not designed to strengthen
existing domestic institutional processes for policy formulation and accountability
(e.g., through parliament). In a few cases, institutional arrangements
to sustain the process are beginning to develop around the budgetary cycle.

4. The PRS process has had limited impact in generating meaningful
discussions, outside the narrow official circle, of alternative policy
options with respect to the macroeconomic framework and macro-relevant
structural reforms. This reflects in part the absence of any mechanism
to ensure that key issues were aired and the broader debate well-informed.
Lack of clarity about the role of the IMF in this area contributed to
this outcome. In the relatively few cases where a broader debate did occur,
there was a positive impact on policy outcomes.

5. Results in terms of ownership are mixed. The approach
has often generated relatively strong ownership in a narrow circle of
official stakeholders responsible for driving the process, but much less
among other domestic stakeholders. The perception that the approach is
overly influenced by procedural requirements of the Bretton Woods Institutions
(BWIs) is widespread.

6. In terms of diagnostics, the approach has generally
contributed to a significant improvement in understanding the multidimensional
nature of poverty, which has implications for designing poverty reduction
strategies. However, the approach has been much less effective in identifying
constraints to accelerating growth and making it more pro-poor. The approach
has so far not contributed significantly to understanding the linkages
between growth, poverty incidence, and macroeconomic policies at the individual
country level. These issues present analytical challenges that are not
necessarily resolved through participation alone.

7. Strategies outlined in PRSPs generally constitute an improvement
over previous development strategies, in the sense of providing greater
poverty focus, a longer-term perspective, and some results orientation.
However, most PRSPs fall short of providing a strategic road map for policymaking, especially in the area of macroeconomic and related structural
policies. The focus of most PRSPs is on the composition of public
expenditures, especially social sector spending, with much less emphasis
on other aspects of a broader strategy to encourage poverty-reducing growth.
Even in the area of public expenditure, the operational value of PRSPs
is often limited, because of the still rudimentary nature of most costing
and prioritization. In many cases, PRSPs also avoid addressing key strategic
choices involving "controversial" structural reforms. These
weaknesses imply that in most cases PRSPs do not yet provide a policy
framework in which PRGF-supported programs can be anchored.

8. Except in a few countries where the process is beginning to
be embedded in domestic institutions, there is limited feedback from initial
implementation to policy design. This is particularly problematic
in the area of macroeconomic policy where the original PRSP was often
overtaken by events or proved unrealistic, and there was little in the
PRSP to guide choices on key strategic trade-offs involved in recalibrating
macro-economic targets.

9. Capacity constraints have been a severe impediment to progress
in the implementation of the PRS approach. There has been insufficient
attention to developing a systematic plan of action to strengthen capacity,
including in the IMF's areas of primary competence. Budgetary processes
are weak, and the linkages between the PRSP, medium-term expenditure frameworks,
and budgets are generally poor. In particular, public expenditure management
(PEM) systems are generally too weak to allow the PRSP to play a central
role in implementing expenditure priorities or modifying them on the basis
of feedback on actual costs and outcomes. Strengthening PEM has been recognized
as central to the success of the initiative and is one area where systematic
monitoring by the BWIs on the basis of commonly agreed benchmarks is being
undertaken (at least for the Heavily Indebted Poor Countries (HIPCs)). The results suggest moderate progress.
In other areas, however, capacity limitations which constrain policy design
and implementation have largely not been addressed systematically, including
through BWI contributions.

10. On balance, joint staff assessments (JSAs) do not perform adequately the many tasks expected
of them. The clarity, candor, and comprehensiveness of the assessment
are uneven, with scope for improvement even in "good practice"
cases. This partly reflects a built-in bias to reach a "yes or no"
signalwhich is always "yes" in practice, encapsulated in standardized
language. Other factors limiting the usefulness of JSAs include the lack
of explicit benchmarks in most areas on which to base the assessment.
Their main contribution has been in giving feedback to the authorities
on weaknesses in the PRSP, but JSAs are virtually unknown outside the
narrow official circle and consequently have no impact on the broader
policy debate. They do not incorporate systematic inputs from development
partners and, in practice, have played a limited role in informing lending
decisions, including those of the BWIs.

11. The effectiveness of the IMF's contribution has varied considerably
across different components of the initiative and across countrieswith
marked differences between "good" and "average" practice.
Its overall contribution has fallen well short of the (admittedly
very ambitious) goals it set for itself in the original policy documents:

IMF staff
typically did not participate actively to inform the policy debate among
domestic stakeholders during the PRS formulation process and to ensure
that key macro-relevant issues were aired. This is because IMF staff
generally interpreted the emphasis on country ownership as implying
that involvement on its part should be limited.

IMF contributions
to developing a better understanding of country-specific micro-macro
linkages have also been fairly limited. The process has led to much
greater awareness within the IMF of the need for ex ante poverty and social impact analysis (PSIA), and this
is evident in internal IMF processes, but it has not yet translated
into a mainstreaming of such analysis in program design.

On the
positive side, there are signs that the "policy space" in
the macroeconomic area has widenedin the sense of greater openness
on the part of the IMF to considering alternative country-driven policiesat
least in countries where macroeconomic stabilization is no longer a
pressing issue.

12. Success in embedding the PRGF in the overall strategy for growth
and poverty reduction has been limited in most casespartly reflecting
shortcomings in the strategies themselves. Nevertheless, program
design under the PRGF has incorporated greater fiscal flexibility to accommodate
aid flows, and there is no evidence of generalized "aid pessimism"
or a systematic "disinflation" bias. Expenditures designated
as poverty reducing have increased markedly since 1999, although there
are questions about how "pro-poor" some of this spending is.
IMF structural conditionality has been streamlined, but we have not been
able to reach a definitive conclusion on what has happened to aggregate
IMF-World Bank conditionality, which is not monitored by the two institutions.
There were only minor improvements in program implementation under the
PRGF.

13. In terms of outcomes, only tentative messages emerge at this
stage.

BWI measures
of the quality of policies and institutions suggest that PRS countries
generally started out in a better position than non-PRS low-income countries,
but did not improve at a faster pace.

Short-term
growth for PRS/PRGF countries is only marginally higher than in the
earlier period. However, these countries seem to have weathered the
worsening of the external environment in 2000-02 better than other
low-income countries, which experienced a decline in growth.

Evidence
on poverty-related outcomes, drawn from the parallel evaluation by the World Bank's Operations Evaluation Department (OED), is
still too limited to draw definitive conclusions. The most notable
improvements concern various input- and output-related measures (e.g.,
number of teachers, school enrollment, vaccination rates), but outcomes
such as maternal and infant mortality rates have generally not improved.

14. To summarize, in cases where the PRS approach has been integrated
into domestic institutional structures, there have been important improvements
in domestic policy processes. In most cases, however, while the PRS approach
has generally helped make progress in the right direction, achievements
are more tentative. Where the PRS approach has been implemented as an
externally imposed, ad hoc exercise, it has acted more as a distraction
from strengthening the domestic policy framework.

1 This report was prepared by a team headed
by David Goldsbrough and including Jeffrey Allen Chelsky, Martin Kaufman,
Steve Kayizzi-Mugerwa, Isabelle Mateos y Lago, Alex Segura-Ubiergo, Daouda
Sembene, and Tsidi Tsikata. Research assistance was provided by Patricia
Yang-Yang Chen and Mike Taib. Important contributions were also received
from Professor Arne Bigsten, Soren Jensen, David Peretz, and Kerfalla
Yansane. The report was approved by Montek S. Ahluwalia, Director of the
Independent Evaluation Office (IEO). Final judgments are the responsibility
of the IEO alone.